Why Banco ABC Brasil is optimistic about the local market

With about 45bn reais (US$8.8bn) of assets in its portfolio, Banco ABC Brasil is the most important subsidiary of the Arab Banking Corporation, whose headquarters are in Bahrain.

Almost 20% of its portfolio is made up of electric power and oil and gas projects, where the demand for financing is increasingly heated. 

In this interview with BNamericas, the commercial director of the corporate banking area of ABC Brasil, Rodrigo Montemor, explains why the business outlook is positive.

BNamericas: How big is Banco ABC in Brazil, and what’s the participation of the oil, gas and electric power sectors in your portfolio?

Montemor: We’re a foreign, publicly traded bank, present in Brazil since 2007. About 65% of our capital is in Arab hands, in Bahrain. Brazil accounts for more than half of the bank's results, being its most important subsidiary. 

We have 45bn reais in assets, 25% of which are linked to agribusiness. Electric power represents around 15%, and oil and gas 3%. 

We work in three segments: middle market, which includes companies with revenues of between 30mn reais and 300mn reais per year, corporate banking, with groups with revenues starting at 300mn reais per year, and commercial and investment banking, which deals with large groups such as Vale and Petrobras, with revenues exceeding 4bn reais per year. Corporate banking accounts for almost 60% of the 45bn reais in assets. 

BNamericas: How do you evaluate the business prospects in the oil and gas area?

Montemor: Today, in oil and gas, we divide ourselves into two worlds. One is O&M [operation and maintenance], including service providers such as cabotage, maritime support, diving, etc. After years of suffering, these companies are starting to benefit from the rising oil prices and the resumption of Petrobras' investments, and we already see a great demand for capex and working capital. The working capital goes, for example, to vessels that need retrofitting to meet specific Petrobras contracts or to the mobilization of these contracts, with the hiring and training of personnel, acquisition of materials, etc. We use our own resources, from the bank's balance sheet, but we also take debentures to the market. 

And there’s also the E&P [exploration and production] group. After a period of crisis, Petrobras began to resume investments and divestments in onshore and shallow waters. That was when companies such as 3R Petroleum, PRIO [formerly PetroRio], and PetroRecôncavo, among others, started to surf on this wave. And they went public and made follow-ons, accessing the capital markets, variable and fixed income, and issuing debentures. With oil prices above US$90, they hedged at levels that pay very well, considering extraction costs of between US$20 and US$30. And we’ve been a very important player in these hedge operations, equity and debt capital markets. 

PetroRio, for example, was able to access the international market by issuing bonds, taking advantage of oil at a spectacular level. 

BNamericas: Do you believe that more players will seek to access the capital markets, taking advantage of the current situation?

Montemor: Yes, we’ve been sought out. Some private equity funds are looking at assets that can be sold by Petrobras. Possible new entrants may debut in this market, given the extremely favorable conditions. The fixed income market is very attractive, while the variable income market is a little less so because of the macroeconomic situation and the level of the Selic [benchmark rate] that we’re experiencing. Even so, they are studying this possibility because of the high oil price. 

BNamericas: What are the perspectives for the electric power area?

Montemor: We provide services to generators, especially solar, wind, CGH [mini hydro plants], PCH [small hydro plants], and DG [distributed generation], as well as transmitters and distributors. We’ve created a project finance area, we provide advisory services before and after energy and transmission auctions, and we’re among the three largest issuers of infrastructure debentures in Brazil. 

Editor's note: ABC has issued debentures for companies such as Energisa, Copel and Aliança Geração de Energia. 

Recently, we were hired by a client in Minas Gerais [state] that works with CGHs and we financed his project by bringing in investors from our own relationship, who came in with very long-term debt. In this case, they were operations of CRIs [real estate receivables certificates], in which the right to use the surface of the land was the backing for the CRI issuances.

BNamericas: Are you being sought out more by individuals or companies with an interest in the DG segment?

Montemor: We had, in the recent past, a very large demand for wind and transmission projects. Now there is an increase in demand for DG, including individuals, as well as for centralized solar generation and self-production projects. 

In 2020, we set up an energy trading company focused on the free [non-regulated] market. Among the various products offered is the use of the bank's balance sheet to finance companies that buy energy in this environment. We’re able to do financial operations using the purchase and sale of energy contracts in the free market as collateral.